How Financially Strong Is Sirius Minerals Plc (LON:SXX)?
Investors are always looking for growth in small-cap stocks like Sirius Minerals Plc (LON:SXX), with a market cap of UK£1.53b. However, an important fact which most ignore is: how financially healthy is the business? Given that SXX is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into SXX here.
How much cash does SXX generate through its operations?
SXX’s debt levels have fallen from UK£321.4m to UK£249.3m over the last 12 months , which is mainly comprised of near term debt. With this debt repayment, SXX currently has UK£394.0m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of SXX’s operating efficiency ratios such as ROA here.
Does SXX’s liquid assets cover its short-term commitments?
Looking at SXX’s most recent UK£289.0m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.46x. Generally, for Chemicals companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can SXX service its debt comfortably?
With a debt-to-equity ratio of 49.4%, SXX can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since SXX is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
SXX’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure SXX has company-specific issues impacting its capital structure decisions. You should continue to research Sirius Minerals to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SXX’s future growth? Take a look at our free research report of analyst consensus for SXX’s outlook.
Historical Performance: What has SXX’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
